Transcript: STM E-Books Forecast 2012

Interview with Laura Riccci, Outsell, Inc.

For podcast release Monday, July 23, 2012

KENNEALLY: The long march continues. Throughout book publishing, the journey from print to digital is about much more than form factor. In the professionally focused STM sector, publishers of scientific, technical, and medical texts face seismic shifts in the way their content is commissioned, created, and stored. And as digital sales become integral to their business, these publishers face existential challenges for their survival in a post-print world.

Hello, and welcome to Copyright Clearance Center’s podcast series. I’m your host for Beyond the Book, Christopher Kenneally. The buyers and users of STM content take information seriously. They use it to solve problems, to develop new research, and to advance human wisdom. The great promise in STM e-books is the capacity to deliver data and other information immediately and at the point of use. Publishers and librarians, corporations and institutions will never be the same.

Market analyst Laura Ricci of Outsell joins me with the forecast for the year ahead. Welcome, Laura.

RICCI: Thank you, Chris.

KENNEALLY: Nice to have you join us today, and we should tell people that as a market analyst, you conduct secondary research, data analysis, and company briefings within Outsell’s education and training and STM publishing verticals. Prior to joining Outsell last year, Laura Ricci worked throughout the higher education publishing industry, including a stint in New Dehli, India, and she earned a master’s in international publishing from the UK’s Oxford Brookes University. And with that as background, Laura, let’s discuss the new report you co-authored with Mark Ware on the STM e-books market. Give us a sense of the numbers, and what the proportions are as they relate to the rest of the publishing industry, and trade, for example.

RICCI: Sure. So Outsell estimated last year that the overall market for e-books was about 674 million in 2001 for the STM sector, and that equated to about 16.5% of all of the total STM e-books market. That was a growth of 23% on the previous year, which is interesting when you consider that in STM, the overall books market grew by about 2.1%. So obviously, e-books are a quickly growing portion of the books market. And if you look at it in aggregate, that means that actually the print sales have been in decline.

So the interesting thing that we’re seeing in the STM market is that publishers are looking at these e-book revenues as central to the product plan. They’re no longer treating these revenues as incremental to their business. They’re actually planning, going forward, for these revenues to be central to their P&L to make the product work.

KENNEALLY: This is going to be their business.

RICCI: Exactly, exactly. And so with that, we’re seeing that different kinds of content are being converted to digital in different ways, and really what it depends on is what the users themselves need. And what’s specific to the STM market is, as you mentioned, these users are using the information professionally. So they need it to solve specific problems, and different STM users have different kinds of workflows, and they have different usage patterns depending on where they are, what they’re working on, and what kind of sector they’re in. So while we say that the STM book market is about 16.5% digital, that differs depending on whether you’re talking about technical content, whether you’re talking about research content, or whether you’re talking about medical content.

So to give you a little bit more in-depth look, medical users are more likely to be individual practitioners who need their information at point of care. And so for these individual purchasers, we see less take-up of e-books, just because of the purchasing patterns are going to be different as compared to a scientist or a technician who’s working, for instance, in an academic institution where the library’s making a lot of these digital purchases. And in that case, it makes more sense for the content to be acquired digitally and transmitted digitally.

So that’s one of the reasons why we’re looking at STM e-books in particular, because they really are so unique compared to trade books. The content is being used differently, the content looks different, there are a lot more figures, there’s a lot more tables and equations, which need to be rendered accurately to be made useful. And so we don’t see the same kind of business models and distribution models that work in trade publishing necessarily applying in the STM sector.

KENNEALLY: Right. So when you talk about the content piece itself, it’s not as easy as pouring it out of print and into digital.

RICCI: Absolutely not. And what we’re seeing at the moment is that PDF is still kind of the format which most researchers use. And the reason for that is because there is so much concern that the content is being rendered accurately, even though, for instance, medical professionals are some of those which have the highest take-up of tablet devices and mobile devices. But if a technician is looking at an equation, they want to make sure that that equation is rendered accurately, and it’s rendered alongside the content which it goes with. So that’s why you’ve seen, for instance, in the journals market, journals have been digital for going on 15 years, and they still use the PDF standard.

Going forward, though, we’re seeing that publishers are investing a lot more in XML-first workflow, so that in future, with future formats such as ePub3 which is coming out, perhaps we might evolve more towards flexible delivery. But we’re not quite there yet with every single publisher. So PDF is still pretty much the industry standard, which, as you mentioned, is different than the trade sector, where you really have devices such as the Kindle and the MOBI format and the standard EPUB format, which have really sort of been the catalyst for that market.

KENNEALLY: And no doubt that’s going to change, but publishers have to reckon with the fact that whatever they are providing in the e-book form is going to be seen predominantly on a computer, on a laptop or a desktop device.

RICCI: Exactly. And that’s another reason why the STM market is slightly different from the trade market. Users in the STM market oftentimes are working in a lab or at their computers, and so they’re eager to get that content digitally, and it makes sense for them to get that content digitally. They’re also being served more by institutions and librarians, and so the content is being purchased in larger volumes by a central purchasing body.

And so that’s why you’ve seen a lot of e-book aggregators and a lot of bulk purchases by these libraries of digital backlists. For instance, some of the largest publishers, such as Springer, such as Elsevier, they have made their e-books available, in many cases, on the same platforms as their journal content has been made available digitally, and in bulk purchasing models. Because that’s what makes sense for these libraries. They’re really serving lots of different users who are answering lots of different questions.

And so being able to have a wide portfolio of content is more important to them than having individual books, especially when you take into consideration that many libraries have, in the past, looked at the circulation of individual print books and have found that some monographs are used once, some monographs are not used at all, even though they’re making individual purchases. And they feel that they’re making the best purchases they can, but a wide purchase of a backlist might be more economical for them if they can’t say specifically what content needs to be used at what specific time. It allows a lot more flexibility for them.

KENNEALLY: And it sounds like this is only going to drive a further decline in overall print sales. Would that be right?

RICCI: I think so. What many publishers are doing now, and which is something that we’ve really started to see this year, is they’re starting to, as I mentioned, integrate their digital portfolios in with their print portfolios, and looking at it more holistically. So we’ve seen some innovative publishers move now from publishing the print book, and focusing on those sales, and treating e-books as an incremental revenue stream, as really publishing both at once. But they’re able to transform the underlying economic so that they’re much more favorable.

So for instance, they can serve the print books on a print-on-demand version, so there wouldn’t necessarily be the inventory sitting in the warehouse waiting to be sold. The e-book is available and the e-book can be sold, but there’s less focus on selling the print book because you have to get the inventory out of the warehouse. They’re able to serve it where appropriate, but they’re also able to be more flexible with that delivery. And overall, that’s a healthier proposition for the publisher when the publisher can get there. There’s lots of roadblocks in between, but that’s a more favorable model once it’s in place.

KENNEALLY: Right. It is certainly going to be a long march. There’s no easy route to success here. One of the areas of STM publishing that you call out in the report is textbooks, and the challenges in digital conversion there. Tell us about that briefly.

RICCI: Sure. I mean, we see textbooks as interesting because of their specific use cases. You see that some students are less comfortable learning from a digital version, and that might be because they have not yet experienced the most optimal learning platform yet, the content itself has not yet made itself conducive to learning. But with digital delivery, there are more opportunities, should publishers be able to find them.

So for instance, if you can find a way to make the textbook more social, so that they can learn alongside their friends. If you can integrate the same sort of highlighting and note-taking features, which come standard with a print book. Of course you can write on the pages if it’s print, but if you have a digital copy and you take that feature away, then it becomes less useful. That involves a lot more investment from the publisher, so unfortunately it’s a lot trickier to put into practice than, for instance, a monograph, which is just sort of text or a reference work, which is pretty straightforward, you know, the interoperability between the different pieces needs to be there.

So we see a lot of innovation, we see a lot of testing, and we see some providers’ inkling is always a good example in the space of providers who are integrating lots of interesting new features, and really experimenting with what can be made available and what can be integrated to make the product as useful as possible for the students, and the particular use that they’re using it for.

KENNEALLY: About the whole notion of experimentation and the importance of that, it strikes me that publishers must feel a bit overwhelmed at this point, because they’ve got to experiment across the board. There are the forms and the features that you were just talking about, but there’s experimentation around business models too. Perhaps this isn’t something that you can capture in a report like this, but do you have a sense of how STM publishers are meeting that challenge of becoming more like an innovative business, say like a technology business, than what they were previously?

RICCI: Sure. I mean, one thing that I found interesting when speaking with different publishers about this is that STM publishers are looking to unrelated sectors as well, to determine what’s the best business model for them going forward. I heard some publishers saying, well, have you seen what this romance imprint is doing? Have you seen what that textbook publisher over there is doing? So really, there’s a lot of creative thought being put into this.

I think going forward, what you’ll see is not necessarily lots of innovation around what the content looks like and what platform is being used, but how the content is going to be delivered, in such a way that it really meets whatever need comes up. Because different libraries, different users, different academic bodies, they all have different needs, and they will have different needs at different times. So making that foundation as flexible as possible is really the key to being able to serve them.
Because if you find yourself in a situation where you are not able to deliver the content that they need at that particular time, that customer is going to walk away. So it’s really, I think at this point, about first keeping your eyes open, and looking at all the available models, and also not locking yourself into any one model, so that if you find that something isn’t working, you’re able to offer something else.

KENNEALLY: We’re talking with Laura Ricci, market analyst for Outsell, about a report she has co-authored, just published in June, called STM E-Books: 2012 Market Size, Share, and Forecast. And in the report, Laura, you and your co-author Mark Ware call out several disruptors that are obviously casting a shadow on all of this, as far as publishers are concerned. And one of them is something we’re familiar with at Copyright Clearance Center, which is about content control and ownership, and the licensing issues that sort of follow from that.

Tell me briefly about what you have found, in talking with publishers, about how they’re facing all of that. How much fear is there about piracy, and what are some publishers doing to address the changes that digital delivery brings to the business model?

RICCI: Well, STM is slightly different from trade publishing, for instance. Because, I mean, you do hear publishers occasionally say that STM content is less attractive for piracy, because it targets niche audiences, so it won’t have the widespread piracy that something like a hit fiction book would have. But at the same time, it’s important to understand that when you’re purchasing a digital copy, you’re purchasing a license to access it. You’re not purchasing a thing.

So we’ve seen a lot of anxiety around what happens to the content when someone purchases it. If that digital version is copied, then it really dilutes the marketplace, and it takes value away from the purchase copy. And so there is a real danger in piracy.

Some publishers have reacted, then, by requesting that DRM be put on their books, and locking that book onto a specific platform or to a specific user. But you also see some publishers, Springer and O’Reilly have been two that have been really innovative, in that they don’t offer DRM on their titles. And O’Reilly has been very vocal about trusting their users, and trying to avoid situations in which someone has purchased access to a copy, and then finds that they can’t access that copy.

So one of the corollaries that we often hear is that the music industry has gradually moved away from DRM, and so you hear that as an argument for why DRM is eventually going to evolve out of the book industry. But I think another thing to consider as well is that when you’re delivering content within a workflow solution, there’s less of a need for DRM. So really, the point of added value is making the content available at the specific place where the problem is being solved.

So that’s just one example of a way that being flexible with the content delivery and being innovative with the content delivery really makes the whole issue of DRM sort of less applicable in this circumstance.

KENNEALLY: It’s fascinating, because it really is getting to the whole point of what is a book, and how do we think of things beyond the container, if you will. So that brings up another aspect of this very disruptive time in STM publishing, which is what you call in the report books versus bites. There’s this beginning, this growing habit that we all have online of really sort of dipping into content, getting the information that we need, what the result is of a sports event or how the Supreme Court has ruled and so forth, and we kind of go from there.

What kind of response is that generating in STM publishing right now? How are the publishers fighting the battle between keeping the book as book and allowing the content to be freed in order to deliver it at that point of use, at that moment that the user needs it?

RICCI: The interesting thing about how books are being consumed is that, in many ways, it’s different from how the STM publishers are conceptualizing them when they’re being commissioned. Historically, it’s been a print-based model, so the publishers themselves have thought about how to create an analogue object with a cover, a spine, which is probably not being used very differently than the digital content is being used now. You know, the user is referencing a chapter at a time, or they’re going to a specific point at the page and then moving on with their problem.

So you see still, there are many publishers who are looking at these books as individual units. Now, at the point of use, when you take off the cover and the spine, and you make it a digital product, it starts to compete with every other piece of content out there. Perhaps the answer to your question is in a journal article, perhaps the article is available through a Twitter feed or something like that. You know, it’s really about finding the best piece of content to fit that individual use case.

And so people who are using the content now are now longer looking at books. They’re looking at platforms, or they’re looking at tools. And so the book itself, you’re right, is starting to become less important as a particular volume.

Now, the thing to consider with STM content is that the important part is that the content is vetted, and it’s something that can be cited, and it’s something that has the stamp of approval, which will take that research forward. It can’t just be any old thing, it has to be validated in some way. And so that’s why you still see that the editorial process provided by a publisher is important, and getting the content which is most reliable, most up-to-date, to that user is, frankly, where publishers are adding the most value.

But it does take a little bit of bravery to understand how the business model might change that fundamental unit that you are creating, and the way that you create it might even have to change.

KENNEALLY: Well, if the book is losing its place, its primary place in all of this, it sounds like the publisher is hanging onto its own special role. And yet, in STM, there is a sort of encroachment by open access. Perhaps you can tell us briefly about how e-books and book publishers, not the journal side of things but the book side of things, is confronting the challenge of OA.

RICCI: Sure. I mean, OA is less of an issue in e-books than it is in journal publishing, certainly. For scholarly monographs and for the academics who are writing them, the stamp of approval from a publisher is very important, especially when you’re considering things like tenure committees. So it’s less of an issue, certainly, than in trade publishing. But it is still something to keep an eye on, because publishers are very concerned with being able to add that value, and being able to provide that stamp of approval. And so you always want to keep an eye out for emerging competitors, which might be able to fulfill that same role, but not necessarily in the same way as a traditional publisher.

So for instance, the California Digital Library, that’s an initiative which helps to create scholarly monographs, and which takes away that traditional revenue stream by offering the content as more open access or on an author-funded model. So it’s less of a threat. It is worth keeping an eye on, and especially, as I mentioned, similar businesses such as trade publishing. If that really starts to take off in trade publishing, you may just see some repercussions in the STM market as well.

KENNEALLY: And perhaps even in the textbook market. We’ll have to watch all of that and look for more reports from Laura Ricci, who’s the market analyst and co-author of a report from Outsell just out called STM E-Books: 2012 Market Size, Share, and Forecast. And Laura Ricci, thank you for joining us today.

RICCI: Thank you, Chris.

KENNEALLY: We should tell everybody that Beyond the Book is produced by Copyright Clearance Center, a global rights broker for the world’s most sought-after materials, including millions of books and e-books, journals, newspapers, magazines, and blogs, as well as now images, movies, and television shows. You can follow Beyond the Book on Twitter, like Beyond the Book on Facebook, and subscribe to the free podcast series on iTunes, or at our Web site, copyright.com/beyondthebook.

My name is Christopher Kenneally. For all of us at Copyright Clearance Center, thanks for listening to Beyond the Book.